16 July 2008

Capitalism: a convenient scapegoat

In his book Supercapitalism, a critique on the adverse effects of turbo-charged capitalism in tandem with a weakened democracy, economist Robert Reich writes:

Capitalism's role is to enlarge the economic pie. How the slices are divided and whether they are applied to private goods like personal computers or public goods like clean air is up to society to decide. This is the role we assign to democracy.

This is in response to the common accusation of capitalism being the fountainhead of all sorts of social and environmental ills, from widening inequalities of income and wealth to greater job insecurity to climate change. This simplistic view is inaccurate and lays far too many sins at the feet of what is essentially a neutral tool of material and social progress.

Yes, without robust checks and balances in the form of an engaged citizenry, capitalism can go bad. But to declare that capitalism is unequivocally a negative force is to ignore the fact that, as the economist Milton Friedman argued, capitalism is the necessary, though insufficient, precondition for democracy. Reich concurs:

Democracy requires private centers of economic power independent of a central authority; otherwise people can't dissent from official orthodoxy and also feed their families.

This echoes Friedman's observation that economic freedom promotes political freedom because, like the separation of church and state, the separation of economic power from political power ensures that one sphere is able to check and offset the other.

But what about China, the poster child for a successful authoritarian capitalist state? There is a strong case for China eventually having to enact democratic reforms since by embracing capitalism its government has placed the point of the democratic wedge at its breast through exposing its citizens to the full impact and allure of liberal attitudes, even if at present these are limited to the market. Yet Reich notes that there are those who think that China will resist democracy and instead invent a new system of authoritarian capitalism. Which just means business as usual.

China's example illustrates Reich's argument that capitalism is a system amenable to the particular policies adopted by governments and in the case of democracies, by the actions (or lamentably inaction) of citizens. The issue isn't whether capitalism does good or harm (it can do either) but whether the civic mechanisms in a democracy are functioning as they should to channel the impressive output of capitalism towards the public good. Critics who condemn capitalism's singular focus on growth are being narrow-viewed themselves. Is growth per se an evil? What about capitalism's ability to generate growth in the renewable energy industry, or in Third World development, in education, medicine and healthcare technologies?

Let us be clear about what it is exactly that we are criticising with regards to capitalism and not charge it with crimes it isn't guilty of. In the anti-capitalist camp, socialists in particular believe in a romantic narrative which requires an evil dragon to slay in order for them to achieve an equally mythical utopia. The reality is more complicated and will not yield to any demands for a reductionist, black-and-white interpretation. While libertarians who call for a totally laissez faire capitalism (as advocated by the writer and philosopher Ayn Rand) are guilty of the opposite extreme position that fails to take into account the complexities of often irrational economic actors, anti-capitalist sentiments on the other hand place far too little trust in the rationality of citizens and civic bodies and in their ability to steer capitalism in the right direction. Perhaps it just never occured to these critics that capitalism is capable of being used for good.

Economists like Robert Reich are sounding the alarm at a moment in democracy's history when it is arguably at its most enfeebled compared to the current consumption-manic manifestation of capitalism; capitalism on steroids. I stand with him and others like him in extending an invitation to both capitalism's supporters and critics to join the effort to reinvigorate democracy, that capitalism shall once again have a steady hand at the wheel.